The problem of regulatory arbitrage: A transaction cost economics perspective

Regulatory arbitrage, or the ability of financial firms to circumvent or neutralize rules, is a classic problem of financial regulation. This article draws on transaction cost economics (TCE) to reformulate this old problem, thus defining regulatory arbitrage as a contracting hazard arising from interactions between the regulator and regulated firms, given bounded rationality and opportunism. Following standard TCE, the article first characterizes the implicit regulatory contract in finance, focusing in particular on the mobile and elastic nature of regulated actors and financial assets as well as the contested utility of financial innovation. It is then argued that this incomplete and hazard-prone regulatory bargain must be matched with a governance structure that both adapts to unforeseen circumstances and avoidance strategies and copes with radical uncertainty about the welfare consequences of financial innovation. To that end, the article discusses how a governance structure here termed “relational regulation” might facilitate such ex post governance under uncertainty.     

The theory of the state and politics: a central paradox of Marxism

It is commonplace to observe that while Marx saw the withering away of the state as necessary for communism, the state in ‘Communist’ societies has done anything but wither away. This seems to indicate a paradox in the Marxian theory, whose resolution would probably tend to undermine the theory itself. It is, however, argued that the expansion of the state in ‘Communist’ societies is only apparently contradictory to the Marxian theory, and that the theory in fact provides the basis for a most adequate account of this phenomenon. But the theory does have a genuinely paradoxical quality which lies in the tension between the political and its social basis, in the socialist movement. The fundamental component of the Marxian theory is its demonstration of the dependence of the state and politics on society; the problem then is the very status of ‘the political’ as a category, and especially the meaning of a ‘marxist politics’. Marxism itself demonstrates that the very existence of ‘politics in the direct and narrow sense of the word’ is the product of an alienated society, and yet it posits a politics which necessarily exists partly in this very sense. This paper considers the Marxian theory and the problems it tries to deal with, and attempts to show that the solution to its paradox lies in resolving the real tension between the social movement and its political expression. It will be argued that terms of the dilemma are being modified by changes in the relations between the state and society. These changes make a political solution of social contradictions more possible, precisely because they reduce the abstraction of politics from society.     

The travails of the secular: puzzle and paradox in Turkey

Abstract

Conflicting claims of Muslim marginalization and injury and alarmist narratives of encroachment on secular spaces and intimidation of its citizens have dominated public debates in Turkey. The purpose of this paper is to disentangle the web of meanings associated with the ‘secular’ and to analyse the political fortunes of secularism. It specifically attempts to elucidate how and why critiques of lack of accountability, authoritarianism and militarism were mapped onto an onslaught on secularism itself. It argues that the historical shallowness of civic notions of citizenship was compounded by the instrumentalization of religion by the secular establishment, the embedding of Islamist actors in the electoral politics of patronage and the consolidation of Islamic capital in the wake of neoliberal policies since the 1980s. It concludes that the terms ‘secular’ and ‘Islamic’ have become empty signifiers and tropes mobilized by contending political actors in their search for hegemony and the consolidation of their power.     

The elimination paradox: apportionment in the Democratic Party

To award delegates in their presidential primary elections, the US Democratic Party uses Hamilton’s method of apportionment after eliminating any candidates (and their votes) that receive less than 15% of the total votes cast. We illustrate how a remaining candidate may have his or her delegate total decline as a result of other candidates being eliminated; this leads to a new elimination paradox. We relate that paradox to the new states, no show, and population paradoxes and show that divisor methods are not susceptible to the elimination paradox. We conclude with instances in which the elimination paradox may occur in other contexts, including parliamentary systems.

     

The regulatory state in developing countries: Redistribution and regulatory failure in Brazil

Following the traditional doctrine of the “regulatory state”, regulatory agencies should be given very focused mandates and stay away from the politicized realm of distributive policies and decisions. An opposing perspective would state that if regulatory agencies can contribute to economic redistribution, positive results such as network expansion, economies of scale, and fiscal efficiency will ultimately lead to lower levels of regulatory failure. This article tests whether, in countries of high socio-economic inequality, such as Brazil, the active incorporation of distributive considerations by regulatory agencies leads to lower levels of failure. Through the analysis of the activities of seven Brazilian network regulatory agencies, the article develops theory-driven expectations and tests these expectations using crisp set Qualitative Comparative Analysis (csQCA). It concludes that not prioritizing redistribution is a necessary but not a sufficient condition for regulatory agencies' failure. In most types of failure, a lack of priority to redistribution leads to failure when combined with low regulatory capacity and low levels of competence.     

The paradox of principles: the dialectics of Hayek's liberalism

The success of Hayek's ideas and the political project they served is especially attested by the appreciation and appropriation of his theories by socialist intellectuals whose rehabilitation was one of his life-long preoccupations. His work, however, continues to elicit contradictory epithets such as ‘remarkable consistency’ and ‘irremediable eclecticism’, ‘propaganda’ and ‘social science’. The apparent paradox is underlined by Hayek’s own forceful rejection of dogmatic rationalism and all forms of intellectual and political eclecticism. This paper attempts to relate and resolve these conundrums by re-examining his work in the light of yet a third question that haunted him ever since his youthful conversion from Fabian socialism to militant liberalism, namely how to reconcile the decline of liberal capitalism, considered the freest and most efficient order conceivable, with an evolutionary discourse that precluded such a possibility. By anchoring the discussion in this central question, rather than the customary focus on a particular theory, tradition, discipline or set of privileged texts, this paper demonstrates that both eclecticism and ideological closure are intrinsic to Hayek’s singular quest to advance the cause of ‘progress’ against the permanent threat posed by collectivism.     

The paradox of nationalism: The common denominator of radical right and radical left euroscepticism

What can explain the strong euroscepticism of radical parties of both the right and the left? This article argues that the answer lies in the paradoxical role of nationalism as a central element in both party families, motivating opposition towards European integration. Conventionally, the link between nationalism and euroscepticism is understood solely as a prerogative of radical right‐wing parties, whereas radical left‐wing euroscepticism is associated with opposition to the neoliberal character of the European Union. This article contests this view. It argues that nationalism cuts across party lines and constitutes the common denominator of both radical right‐wing and radical left‐wing euroscepticism. It adopts a mixed‐methods approach, combining intensive case study analysis with quantitative analysis of party manifestos. First, it traces the link between nationalism and euroscepticism in Greece and France in order to demonstrate the internal validity of the argument. It then undertakes a cross‐country statistical estimation to assess the external validity of the argument and its generalisability across Europe.     

The paradox of the region: economic regulation and the representation of interests

This article deals with the relationship between economic regulation and interes-group representation at the regional level in advanced capitalist societies. The importance of an ‘intermediate government’ of economic development at the regional level has increased in recent years within such societies as a result of the crisis of the Keynesian wlfare state and the decline of Fordism. At the same time, however, the growing need for regional regulation does not necessarily call into being an explicit demand for and supply of efficient regional government within the existing institutional framework. This ‘paradox fo the region’ is explored int he context of the Italian case, characterized by strong local but weak regional identities organizations of business and labour for an effective intermediate government of the economy, an proposes a strategy for reinforcing such organizatons at this level through the reform of regional government administration and the supervised delegation of public powers to them.     

Less is more: The paradox of choice in voting behavior

How does the number of candidates competing in an election affect voting behavior? In theory, as the number of candidates running for office increase, citizens’ utility from voting also increases. With more candidates, voters are more likely to have candidates that are close to their ideal points. Practically, however, more candidates also means a higher cognitive burden for voters who must learn more during campaigns in order to find their “ideal” candidate. In this paper, we examine how choice set size affects voting behavior. Using a survey experiment, we show that subjects presented with many options learn less about candidates, are more likely to vote based on meaningless heuristics, and are more likely to commit voting errors, when compared with subjects who choose between only a few candidates.     

To vote or not to vote: The paradox of nonvoting

One paradox of voting states that, in a general election, in which many citizens vote, the probability that a single voter can affect the outcome is so small that in general citizens have no rational reason for voting. However, if all citizens accept this reasoning, then none will vote, and so each vote has a large probability of affecting the outcome. Hence all should vote after all. The adoption of mixed strategies resolves this paradox: if each citizen adopts a certain (small) probability of voting, then the actual number of citizens voting will be just enough to make it worth those citizens' while to vote. A Nash equilibrium point thus occurs. Here we compute Nash equilibria for the simple case of majority voting; for the more complicated case of composite voting (for example, as in a presidential election), we draw certain qualitative inferences.     

The paradox of politics and policy in redistributing income

With political ideology with respect to the income distribution measured by proxy as the fraction of conservative coalition victories, it is found that over the period 1961–1984 the degree of conservative coalition strength is positively associated with changes in inequality, holding the effects of unemployment and inflation constant.A natural question is why don't the low income types vote in candidates who will consistently redistribute income in their favor? The result of such a political process would be a downward trend in income inequality. In point of fact, there is no evidence whatsoever of any trend in income equality over the period. The answer to both questions may be that Tullock (1983, 1986) is on to something. If the middle class voters transfer gains back and forth, the poor can't gain and they don't, then the distribution should be stable and is.     

The Kramer problem: Micro-macro resolution with a Danish pool

In a seminal paper, Kramer (1983) posed his “problem” for the study of economic voting with election surveys: the items administered can measure neither individual nor national economic wellbeing accurately. Instead these items of economic perception are laden with erroneous judgment and partisan bias. Thus, the investigation of economics and elections should not be a survey research enterprise. Here we show, through varied analyses in an extensive, well-gathered Danish election pool, that these fears are unfounded. The presence of strong sociotropic voting effects from surveys can be established, and reconciled with the observed effects of national fluctuations in the macro economy. Indeed, the micro- and macro- processes mirror each other, so resolving the Kramer problem.     

The portfolio allocation paradox: An investigation into the nature of a very strong but puzzling relationship

Abstract.  Perhaps the strongest empirical finding in political science is 'Gamson's Law': the near-perfect relationship that exists in parliamentary systems between a coalition party's seat contribution to the government and its quantitative allocation of cabinet portfolios. Nevertheless, doubts remain. What would happen if the salience or importance of the various portfolios was also taken into account? Should it not be the case that payoffs correspond with bargaining power rather than seat contributions? And perhaps most significantly, would addressing these issues produce evidence that the parties designated to form governments extract disproportionately large payoffs for themselves, as predicted by 'proposer' models of bargaining? Utilizing the results of a new expert survey of portfolio salience in 14 Western European countries, the authors of this article explore each of these questions. Their basic finding is that salience-weighted portfolios payoffs overwhelmingly mirror seat contributions, contra proposer models and any other models based on bargaining power. The article concludes with a discussion of the implications for formal models of bargaining.     

The voter's paradox and the homegeneity of individual preference orders

Errata Sheet

The voter's paradox and the homegeneity of individual preference orders     

Unitary regulatory supervision or multi-entity supervision? A computational approach to a numbers problem in financial regulation

Policymakers globally have debated (and often implemented) the idea of consolidating numerous financial regulatory supervisory entities into one unitary entity. This article uses a computational model to explore the effect such a decision would have on supervisory performance. Using insights from organizational scholarship on consensus-making among individuals within organizations, the simulation suggests that under most conditions a unitary supervisory entity yields lower performance than smaller, numerous entities with unique mandates, keeping the number of regulatory inspectors constant. This result arises from the heterogeneity of perspectives being shared within the entity and the influence of precedent actions. The results also show a decreasing utility to disaggregation: performance decreases when too few inspectors share among themselves in building consensus. When insufficient heterogeneity within supervisors exists, unitary frameworks outperform multi-entity frameworks. These findings have implications on the design of supervisory frameworks and contribute to research on consensus-building, heterogeneous group membership, and computational modeling.